FAQs

VA Loan Frequently Asked Questions

VA Loan FAQ's, Getting answers to some of your most common frequently asked questions regarding VA home loans can feel like a hassle at times. Here at Low VA Rates, we want to make it as easy as we can for you to access the answers you are looking for.

VA Loan Basics

What is a VA loan?

A VA loan is a home loan that is guaranteed (not offered) by the Veterans Administration. VA loans are obtained through VA-approved lenders who choose to offer them. The VA guarantees a portion of the loan amount to the lender in case of default to lessen the risk and enable them to offer veterans more favorable loan terms than they could otherwise qualify for. Because of the VA guarantee, VA loans do not require a down payment or mortgage insurance.

Who is eligible for a VA loan?

Most current or former members of the full-time military are eligible for the VA loan program. There are time-served requirements, but they are relatively short and vary depending on the years during which the veteran served. Those who are currently serving or retired from the National Guard or Selected Reserves are generally eligible for the program after 6 years of service. Surviving spouses of veterans who died during service or from a service-connected disability are also eligible for the VA loan program.

What can you use a VA loan for?

VA loans can only be used to purchase a property which the borrower intends to occupy as his or her primary residence. In special circumstances, a multi-unit building can be purchased with a VA loan as long as the borrower intends to occupy one of the units. A property being purchased with a VA loan cannot under any circumstances have more than four residential units and one commercial unit.

Are there closing costs on a VA loan?

Yes. The VA specifies which charges the veteran is allowed to pay for and which are the responsibility of the lender or the seller. The VA Lender’s Handbook offers the following explanation for closing costs:

Those payable by the veteran are limited by regulation to a specific list of items plus a one percent flat charge by the lender.

Any other party, including the seller, can pay any costs on behalf of the veteran.

Closing costs cannot be financed in the loan except on certain refinancing loans.

How long do VA loans take?

A general rule of thumb for the length of time it takes to do a VA loan is 45 days. However, it is very possible to do a VA streamline in as fast as 10 days and a VA loan for a new home purchase could take 90 days. We suggest asking your loan officer this question as he/she will have a better understanding of all of the details pertaining to your individual situation and loan.

Can I get cash back at closing on a VA loan?

Yes. There is a catch to this answer though. On a VA loan used to purchase a new home, you can only get cash back in the amount of your earnest money that you put down. On a VA IRRRL or streamline loan you are not allowed to get any cash at closing except for two situations. 1. If doing an EEM loan (energy efficiency loan) then you can get the cash for the improvements. 2. You can get no more than $500 at closing for mathematical or computational differences not foreseen prior to the loan closing. On a VA cash-out refinance you can get as much cash at closing as you were approved for and the VA has no rule on the amount of cash or what you do with it.

VA Refinance

What can a VA refinance be used for?

VA refinances can be used for a variety of different purposes. The most common is to secure a lower interest rate. Refinances can also enable the borrower to make a large, additional payment to take a chunk out of the remaining principal of the loan - this is called a cash-in refinance. Many borrowers use a refinance to use the untapped equity in their homes to finance improvements to their homes, buy a car, or consolidate debt. These types of refinances are called cash-out, or debt-consolidation loans. So a VA refinance can be used to get a lower interest rate, put cash-in to bring the remaining principal down, take cash-out for any purpose agreeable to the lender, including consolidating other debt.

How do I qualify for a VA refinance?

Qualifying for a VA refinance is very similar to qualifying for a new purchase VA loan. You must have a Certificate of Eligibility, and already have the type of loan that the VA refinance you are pursuing requires. For example, the VA streamline refinance option (IRRRL) can only be used on existing VA loans, not conventional. Normal refinances can be used to change conventional or FHA loans to VA loans, or from VA loan to VA loan. Depending on the type of refinance, there may be other requirements. For example, in a cash-out refinance, you will generally be required to explain your reason for getting money out, and that reason will be evaluated by your lender.

How many times can I do a VA refinance?

Theoretically speaking, there is no maximum number of times that a borrower can refinance their VA loan. However, there are plenty of practical restraints that will limit most borrowers to two or three refinances throughout the term of the loan. The VA has a rule for refinancing - that a refinance cannot be approved unless the interest rate on the new loan is lower or there is a substantial net benefit for the borrower.

There are only so many situations where a refinance provides a sufficient amount of net benefit, and therefore only so many situations in which you’ll be able to do a refinance.

Do I have to get an appraisal for a VA refinance?

It depends on the type of refinance. For an Interest Rate Reduction Refinance Loan (IRRRL), the VA’s streamline refinance option, no appraisal is required. However, for the cash-out refinance option, an appraisal is required. Why the difference? Because in a cash-out refinance, the amount of cash you are eligible to receive out of the loan is determined by the amount of equity you have in your home; calculating this relies on the current value of your home.

Equity is calculated by taking the real value of your home (appraised value) and subtracting how much principal you still owe on the home. For an IRRRL, the main goal is to get a lower interest rate, so the appraised value of your home at the time of the original loan is sufficient for underwriting purposes.

Are there closing costs on a VA refinance?

Yes. However, in IRRRLs, most of the closing costs can be financed into the loan amount. The Lender’s Handbook says the following about IRRRLs:

The following fees and charges may be included in an IRRRL:

• the VA funding fee, and

• any allowable fees and charges discussed in section 2 of chapter 8; such as all allowable closing costs, including the lender’s flat charge.

However, There Is One Limitation

While the borrower may pay any reasonable amount of discount points in cash, only up to two discount points can be included in the loan amount.

Although VA does not require an appraisal or credit underwriting on IRRRLs, any customary and reasonable credit report or appraisal expense incurred by a lender to satisfy its lending requirements may be charged to the borrower and included in the loan.

The lender may also set the interest rate on the new loan high enough to enable the lender to pay all closing costs, as long as the requirements for lower interest rate and payments (or one of the exceptions to those requirements) are met.

Cash-out refinances are very similar to new purchase loans in regards to their allowable closing costs.

How long do VA refinance loans take?

A VA refinance loan (not streamline) takes on average 30 days from start to finish. You have the ability to speed this process up or slow it down. The sooner you get all your required paperwork and documentation to your loan officer or processor, the faster the loan process can take. If you struggle to gather information or send in the required documents then the loan process is going to take much longer. As stated, expect around 30 days.

Can I get cash back at closing on a refinance?

Yes. On a VA cash-out refinance you can get as much cash at closing as you were approved for and the VA has no rule on the amount of cash or what you do with it. There is a slightly different answer on a VA IRRRL or streamline loan. You are not allowed to get any cash at closing except for two situations.

1. If doing an EEM loan (energy efficiency loan) then you can get the cash for the improvements.

2. You can get no more than $500 at closing for mathematical or computational differences not foreseen prior to the loan closing.

What does my credit score have to be?

VA does not have any written or specific requirements for a minimum credit score. Here at Low VA Rates, neither do we! VA loans look more at your overall credit history and take a more “human” approach to approve loans. Many other lenders have hard fast rules and do not take into consideration your history. Suppose you got injured in combat or suffer from military-related injuries and your medical bills are hurting your credit score. We take that into account.

The mortgage industry has some general rules. If you have a score under 620 then it becomes very difficult to find financing or VA loan approval at many banks and lenders. Again, here at Low VA Rates, we do not follow that industry standard.

Your credit score can affect your interest rate or closing costs, however. We can many times get someone with a low credit score the same rate or fees that we can someone with a high score. There could be occasions where someone with higher scores has more loan opportunities or better rates available.

VA Streamline (IRRRL)

What is a VA streamline?

A VA streamline is a refinance option that allows the underwriters to reuse much of the information from the original loan. Most loan types have a streamline option; the VA loan program’s streamline option is called the Interest Rate Reduction Refinance Loan, or IRRRL for short. Only an existing VA loan can be refinanced with the VA streamline refinance option. The IRRRL allows for much of the closing costs to be rolled into the loan amount, including up to two discount points. A streamline refinance is a great option for existing VA borrowers looking to take advantage of lower interest rates.

How do I qualify for a VA streamline?

Qualifying for a VA streamline or IRRRL is the easiest of all VA loans to qualify for. Currently, at Low VA Rates, we go off of the VA lenders handbook, written by the Department of Veterans Affairs and we can qualify anyone for a VA streamline as long as they have a VA loan now (and they are the entitled veteran) and the loan they have is paid current. We do not require a credit score and we do not care what your history looked like prior to becoming current. Keep in mind that over the years banks and lenders, including Low VA Rates, have had stricter guidelines for approval but as of now we go directly off the VA handbook and just about anyone with a VA loan qualifies.

Additionally, the VA has a small set of “benefit to borrower” guidelines you must meet.

1. You must be lowering your rate or going from an adjustable rate to a fixed rate.

2. You must also, in addition, be lowering your PI payment each month or your term must decrease. If you are on an adjustable rate (ARM) loan now and refinance to a fixed that is benefit enough for approval.

What are the benefits of a VA streamline?

The most common benefit of doing a VA streamline or IRRRL is a reduction in both interest rate and monthly mortgage payments. Another benefit could be getting off of an adjustable rate loan and fixing into a fixed rate loan.

There are also the possibilities of the following additional benefits if your VA streamline loan is set up correctly.

1. You are likely going to get a refund (check) from your current lender of the balance remaining in your impound/escrow account at the time of the loan refinance. For example, you may have been funding your tax and insurance impounds at your current lender for 8 months (Jan-Aug) and then you refinance in Aug and you are refunded all that money you had put away for tax and insurance premiums.

2. If timed correctly, it is possible to postpone or defer 2 mortgage payments. In the example above say you close your loan in Aug, it is possible to not make your Aug payment to your current lender and no payment to us in Sept so that your next payment is not due until Oct. You do not just get to forget these payments, rather they are financed into the new loan via the VA streamline.

Some other additional benefits still are:

No need to verify income/assets

No need to verify employment

No need for an appraisal

Pay off overdrawn escrow accounts

Possible to do energy improvements with the IRRRL

How many times can I do a VA streamline?

Unlimited. You, of course, must meet all the requirements for approval as listed above.

Do I have to live in my home to do a VA streamline?

No. Many lenders will give you a higher rate to do a VA streamline or IRRRL on a home you have renters in or are not occupying, but here at Low VA Rates, we do not. In addition, many lenders may shy away from a non-owner occupied VA streamline but we will gladly do them.

Are there closing costs with the VA streamline?

Yes, there are. The following is directly from the VA Lender's Handbook.

any allowable fees and charges discussed in section 2 of chapter 8; such as all allowable closing costs, including the lender’s flat charge.

However, There Is One Limitation

While the borrower may pay any reasonable amount of discount points in cash, only up to two discount points can be included in the loan amount.

Although VA does not require an appraisal or credit underwriting on IRRRLs, any customary and reasonable credit report or appraisal expense incurred by a lender to satisfy its lending requirements may be charged to the borrower and included in the loan.

The lender may also set the interest rate on the new loan high enough to enable the lender to pay all closing costs, as long as the requirements for lower interest rate and payments (or one of the exceptions to those requirements) are met.

For IRRRLs to refinance loans 30 days or more past due (which must be submitted for prior approval), the following can be included in the new loan:

late payments and late charges on the old loan, and

reasonable costs if legal action to terminate the old loan has commenced.

How long do VA streamline loans take?

A general rule of thumb for the length of time it takes to do a VA IRRRL or Streamline is 30 days. However, it is very possible to do a VA streamline in as fast as 10 days. We suggest asking your loan officer this question as he/she will have a better understanding of all of the details pertaining to your individual situation and loan. VA IRRRLs are so much faster to process due to the fact that no appraisal is needed, we do not need to verify income or assets and we are not dealing with any sort of inspections on the home.

Can I get cash back at closing of a streamline?

VA Streamline loans are also known as no cash out refinances so by that the general rule of thumb is NO, you cannot get cash at the closing of a VA IRRRL. However, it is possible to get a refund from the current lender of your existing escrow balance at the time of your loan funding. Some lenders will simply reduce your payoff amount owed by your existing escrow balance. In addition to getting your escrow money after your VA streamline closes, you are also able to get up to $500 in cash at closing in many cases.

What does my credit score have to be?

VA does not have any written or specific requirements for a minimum credit score. Here at Low VA Rates, neither do we! VA loans look more at your overall credit history and take a more “human” approach to approving loans. Many other lenders have hard fast rules and do not take into consideration your history. Suppose you got injured in combat or suffer from military-related injuries and your medical bills are hurting your credit score. We take that into account.

Low VA Rates even has an outlet for VA streamline loans with NO NEED to even pull a credit history. We go off the exact outline in the VA lenders handbook and just look at your current loan payoff and as long as your loan is current at the time of closing, you can do the VA streamline.

The mortgage industry has some general rules. If you have a score under 620 then it becomes very difficult to find financing or VA loan approval at many banks and lenders. Again, here at Low VA Rates, we do not follow that industry standard.

Your credit score can affect your interest rate or closing costs, however. We can many times get someone with a low credit score the same rate or fees that we can someone with a high score. There could be occasions where someone with higher scores has more loan opportunities or better rates available.

How many payments must I make on my loan before I can do a streamline?

There is no rule or seasoning requirement on a VA streamline or IRRRL. You may have been told that you have to make at least 6 payments or you may get a penalty etc. Do not believe this. The VA has no seasoning rules (the time needed to be in a loan) before you can do a streamline loan. If you have been told otherwise then you are being misled or lied to. Some banks or loan officers may be required to return their commissions or revenue from your loan if you streamline the loan too soon, however, these are your hard-earned VA benefits and it is sad that someone would try to keep you from using them just to keep money in their pockets at your expense.

Is it true you should drop your rate 1% minimum in order to do a refinance?

We are not sure where this "rule of thumb" came from. On the surface, it may sound good, but there are many situations where even a mere .25% -.5% reduction in your rate could be very beneficial. Perhaps you are in an adjustable rate loan and want to go fixed or your fixed portion of your adjustable rate is set to expire and you want to lock back into a fixed or another fixed period of the arm loan. We suggest consulting with your loan officer when trying to determine if your VA streamline make sense or not. However, we do not agree with the statement that you should lower your rate 1% or more.

Why is my new loan amount higher than what I currently owe?

As we have discussed most loans will require you to pay closing costs. VA streamline loans are unique in that they allow you to "roll in" or finance your closing costs into the new loan. If you want to pay for your closing costs out of pocket at closing you are welcome to do so, but most would rather take advantage of their VA benefits and roll them into the new loan.

In addition to your closing costs being rolled into the loan do not forget that on the VA IRRRL or VA streamline that most elect to defer or postpone their next two mortgage payments. Your mortgage payments do not just disappear or are they forgiven by the current lender. Your interest owed to the current lender from those payments is added to the new loan. We have found that the cost of rolling your closing costs into the loan can normally be recovered or recouped in the first 6-18 months if structured properly.

How do I go about getting my escrow refund after my loan closes?

Your escrow refund is mailed to you by your original lender (the one we paid off with the VA IRRRL) normally within 30 days of the loan funding. It is not guaranteed you will get a refund of your escrow though it does occur on 95%+ of our loans. The only reason(s) you would not get an escrow refund is that your current lender reduced your payoff amount by your escrow balance or because you had nothing in escrow at the time the loan funded. If you want to be certain of what escrow refund you will get, then we suggest calling your loan officer and having them get you a definitive answer from your current lender. No matter what you are told by your current lender, keep in mind Low VA Rates has no control over what they send you.

Can my current lender report me late on my credit if I do not make a payment by the late date?

No, you cannot legally be reported late by your lender until the 30th of the month. By law, you have 30 days to make your payment without being reported late. However, after the 15th of each month (some cases after the 10th), you will likely incur and be assessed a late charge. Many people confuse the late charge with being reported late to the credit agencies.

My mortgage company called me to tell me they have not received my payment, does this matter?

Your payment is due on the 1st day of every month. Most lenders have a collections department that will start calling for mortgage payments that have not posted by around the 20th of the month. If your loan is in the final stages of approval or has been approved to close or has closed, then we suggest you work closely with your loan officer to determine just how serious these collection calls are. Nobody wants to be reported 30 days late/delinquent as this can have damaging effects on your credit, however many times these are just scare tactics to get you to make your payments. Here at Low VA Rates, we will never suggest to not make your payments but rather can guide you in the best way to approach your streamline and your ability to postpone or defer payments.

Will my taxes and insurance still be included after the streamline?

Yes, VA loans done at Low VA Rates all require you to have an impound or escrow account.

Who do I make my payments to after the loan closes?

In your loan closing documents, you will receive a First Payment Letter/Coupon which will guide and instruct you on where to mail or send your mortgage payments. If you ever have questions or confusion on where to send your payments please contact us for assistance.

Where do I go for my closing?

Our goal here at Low VA Rates is to make your loan process as effortless and easy as possible. VA streamline loans are almost always done in your home at the time you prefer. We have closed loans at truck stops in the middle of the Alaskan tundra and we have closed loans at US embassies overseas. If you are purchasing a new home when we try to schedule those closings at the title company where the home seller is doing their closing. In short, we can close your loan wherever you want.

Can I skip any payments?

Yes and no. We prefer not to use the term “skip” as you really are not skipping a payment. What happens if your VA streamline or any VA refinance for that matter, is set up properly is that you are able to defer or postpone your next two payments by rolling them into your new mortgage. Most Veterans prefer this approach as it allows them to attack high-interest rate credit cards, pay other bills, take a much-needed vacation or just save the money for a rainy day. So Yes you can structure your loan so that your next mortgage payment due is 2 months away.

Buying a home with a VA loan?

How much can I borrow with a VA loan?

The VA loan program is unique because it actually has no stated maximum dollar amount for its loans. There are, of course, limitations on the size of the VA loan, but they are completely contextual in nature. There are two primary factors that will determine the maximum amount the VA loan can be made for. The first one is for lenders selling their VA loans through a secondary market. Secondary market loans are sold through a third party service, such as the Government National Mortgage Association, and those third-party services often prescribe maximum loan amounts. VA loans are not granted an exception to those limits.

The second factor that determines the maximum loan amount is the reasonable value of the property shown on the Notice of Value (NOV) provided by the official VA appraisal. The loan will be limited to either the reasonable value on the NOV or the sale price of the home, whichever is lower, plus the cost of energy efficient upgrades up to $6,000 and the VA funding fee.

How many times can I use a VA loan to purchase a home?

In theory, as many times as you’d like. However, you are limited by the occupancy requirement to one home being financed with a VA loan at a time. The occupancy requirement states that the borrower must occupy the property being purchased as their primary residence. Since it is impossible to have two primary residences, you’ll only be able to finance one home at a time.

Also, in order to reuse your VA loan entitlement, you’ll need to apply for a restoration of entitlement. To qualify, your previously-used entitlement must be completely paid off. If you have not defaulted on your first loan and have either paid it off or are selling your old home, this will qualify as paying off your previous entitlement.

Can I purchase a rental property with a VA loan?

Generally no, however, there are some cases where it can be allowed. VA rules state that if a borrower purchases a multi-unit property, then the borrower must occupy one of the units. For example, if the borrower purchases a duplex with a VA loan, the borrower must occupy one of the two units.

Also, the most units a property can have is four. Anything with more than four units will not be eligible for purchase with a VA loan.

What does my credit score need to be to buy a home with a VA loan?

VA does not have any written or specific requirements for a minimum credit score. Here at Low VA Rates, neither do we! VA loans look more at your overall credit history and take a more “human” approach to approving loans. Many other lenders have hard fast rules and do not take into consideration your history. Suppose you got injured in combat or suffer from military-related injuries and your medical bills are hurting your credit score. We take that into account.

The mortgage industry has some general rules. If you have a score under 620 then it becomes very difficult to find financing or VA loan approval at many banks and lenders. Again, here at Low VA Rates, we do not follow that industry standard.

Your credit score can affect your interest rate or closing costs, however. We can many times get someone with a low credit score the same rate or fees that we can someone with a high score. There could be occasions where someone with higher scores has more loan opportunities or better rates available.

No. Though VA loans require no down payment, they do not require mortgage insurance, so VA borrowers can get the benefit of low upfront cost and low monthly payment.

Are there closing costs when buying a home with a VA loan?

Yes. The VA specifies which charges the veteran is allowed to pay for and which are the responsibility of the lender or the seller. The VA Lender’s Handbook offers the following explanation for closing costs:

Those payable by the veteran are limited by regulation to a specific list of items plus a one percent flat charge by the lender.

Any other party, including the seller, can pay any costs on behalf of the veteran.

Closing costs cannot be financed in the loan except on certain refinancing loans.

How long do VA purchase loans take?

A general rule of thumb for the length of time it takes to do a VA loan is 45 days. A VA purchase could take 90 days in some circumstances. On a purchase you need an appraisal, pest inspections may be needed, and you are dealing with Realtors and sellers also. We suggest asking your loan officer this question as he/she will have a better understanding of all of the details pertaining to your individual situation and loan.

Can I get cash back at closing of a purchase loan?

Yes, you can always structure the loan so that you get your earnest money back at closing. You can also do EEM (energy efficient improvements) on a new home you are buying and may be able to receive cash back to reimburse for those improvements. Many times new buyers are really wanting to know if they can get cash to furnish the home or do upgrades and the answer to that is No.

VA Closing Costs

What are the closing costs?

Closing costs can be a very tricky thing for many homeowners and what we find here at Low VA Rates is many people (our competition) confuse you even more by not being transparent or by trying to "trick" you. At the end of the day, all loans have some kind of cost associated with them. Sure, you can select a higher rate and get a loan where the lender removes or credits the costs for you. However, you still have a "cost" by taking a higher rate and thus paying (costing) more interest over time.

A basic breakdown or summary of a Good Faith Estimate (GFE) is very beneficial in understanding closing costs. Perhaps the single most important place to look is page 1 under the A near the bottom also known as your adjusted origination charges. The adjusted origination charges are charges the lender/broker are charging you to get the loan done. B, the other settlement charges are normally the same across all lenders and this section is where fees from 3rd parties are accounted for. Finally, the last box on page 1 of the GFE is a total of A+B= your Total Closing Costs.

Here is a more detailed explanation and breakdown for those interested. Box A as mentioned are charges directly from the originator (lender or broker or both) This area is where you can see what it is costing for the rate you chose or if you are getting a credit for the rate also. The total of Box A is essentially where you can “shop” for a lower cost/rate or deal.

Box B are charges that should stay relatively the same across all competitors. Here you will see costs for the following: credit reports, title insurance and related title fees, recording fees(county), transfer taxes, escrows or impounds, daily interest on the new loan, VA funding fee or mortgage insurance premiums due.

What is the VA funding fee for?

VA loans do not have any down payment required and most have very little to no equity at the onset of the loan. On conventional loans, there is mortgage insurance required if less than 20% down and on all FHA loans, there is an upfront MIP (mortgage insurance premium) and a monthly MI (mortgage insurance) due. Like the conventional mortgage insurance and the FHA MIP, the Department of Veterans Affairs charges a one time upfront fee to guarantee or ensure the loan. Essentially the VA is charging this funding fee on a VA loan in order to have funds available should they need to step in and assist the lender in cases where the Veteran is in loan default. Think of the VA funding fee as an insurance policy for the loan. Banks are willing to make getting VA loans easier because the bank has the backing or guarantee of the US government. The only VA loans that do not require the payment of the VA funding fee are for loans extended to someone receiving VA disability benefits. Keep in mind the VA funding fee is only paid one time at the closing of the loan and not every month. The following is a table outlining how much the VA funding fee is on each loan.

We are asked this all the time. On the surface, it can seem as though your closing costs are too high. There are basically two types of loans (as it pertains to costs) and then a little room in between. 1. You can choose the absolute lowest rate available and as you might expect, the lowest rate = the highest costs. 2. You can take a loan with little to no closing costs but as you might also expect lower costs = higher rate. Why is this do you suppose? Wall Street gets all the loans done in one way or the other. Wall Street wants to do one thing and that is make money. Whether you pay the "banker" a very low rate for the life of your loan or choose to take a "higher" rate with no cost, the banker has figured out how to make the same amount either way. At the end of the day, here at Low VA Rates, we challenge you to find a loan with lower costs/rates than we can offer. In the event that you do, we have a $250 challenge that will allow us to pay you $250 if you are able to. Please contact us for information on how to challenge us on the $250.

Can I do a No Out-of-Pocket Cost loan?

As mentioned above, by choosing to do a no out-of-pocket costs loan, you are simply selecting a higher interest rate. The only time we feel it is prudent to negotiate or try to do a loan with no money out-of-pocket is when you will be moving or refinancing again within about 12-18 months. This is not a black and white rule, but most of our loans can be structured to not only lower your interest rate but to also get your incurred closing costs paid back off within 12-18 months. Please ask us how to structure your loan so that you can take advantage of both the low rates and also recover/recoup your costs as soon as possible.

VA Hybrid ARM

What is a VA hybrid ARM?

A hybrid ARM loan is a loan that combines aspects of both fixed-rate mortgages and ARMs. In a hybrid, your interest rate is fixed for the first 3-5 years (depending on what option you choose), after which, it can be adjusted annually. On a VA hybrid ARM loan, the rate cannot adjust more than 1% above or below the previous rate. Hybrid ARM loans also have a lifetime rate cap of 5% from the original rate. This means that if the original interest rate was 3.5% (2.25% from the Index, and a 1.25% margin), the rate could never rise higher than 8.5% throughout the duration of the mortgage.

In the above example, the terms “index” and “margin” were mentioned. The index and margin are the two basic components of an interest rate. The “index” is the weekly average yield on U.S. Treasury Securities adjusted to a constant maturity of one year. This number fluctuates constantly. The margin is generally determined by the lender, but for VA ARMs, and consequently VA Hybrid ARMs, the margin is set at either 2.00% or 2.25%, which makes VA ARMs much more attractive than other types of ARMs.

Now that we know what a VA Hybrid ARM loan is, we can talk about its advantages and disadvantages. Because a Hybrid ARM is fixed for the first 3-5 years, then subject to variation, interest rates on hybrid ARMS are often lower than fixed-rate mortgages. The adjustments that happen annually after the initial fixed period will bring the interest rate closer to the current rate at the time of adjustment, which protects the lender because they have chances to increase the interest rate later on if interest rates rise after the mortgage has begun. On a fixed-rate mortgage, the borrower is gambling that the higher interest rate they are getting now will be saving them money in the future because interest rates will rise.

What kind of VA hybrid arms are there?

There are two kinds of VA hybrid arms: a 3/1 ARM and a 5/1 ARM. The numbers indicate the number of years the initial interest rate will remain fixed, followed by the maximum it can be adjusted each year afterwards (# of years/max annual adjustment). On a 3/1 ARM, the initial interest rate will remain fixed for three years (36 months), and each year after that the interest rate can be adjusted no more than 1% in either direction. On a 5/1 ARM, the initial interest rate will remain fixed for five years (60 months), and each year after that the interest rate can be adjusted no more than 1% in either direction.

What index does the VA hybrid have?

The VA hybrid arm loans use the CMT index. Here is a great tutorial video that goes over just how the index, margin and Caps all work.

What if rates keep going up?

Asking "what if" is generally an indicator that you are basing your decision on a worst case scenario. For example, "what if I get in a wreck on the way to the grocery store?" If we based all our decisions on the worst case scenarios we would never leave the house! However, suppose rates do keep going up. Here are a few things to consider. First of all, history has shown that rates do go up and in the last 10 yrs or so they have never gone up more than 3 yrs straight. Why not ask, "what if rates keep going down?". Rates have been falling more the past 15 yrs than they have been rising. The simple truth is this, rates will go up and rates will go down. The VA has gone to great lengths to protect you in times of rising rates. On VA hybrid arms no matter how high and how fast rates do rise, you get the following protection. No more than 1% maximum increase per year, no more than 1 time per year for an increase and no more than a 5% increase over the life of the loan.

Questions about Low VA Rates

Are you a scam?

Answer

Yes of course we are. Just kidding. We actually get this question asked and it always amuses us because if we were, we would certainly have a hard time admitting it wouldn’t we? We want you to feel very secure and safe when doing business with us. Just ten years ago or so, the mere thought of doing a mortgage over the internet, phone or fax and not meeting face to face seemed foreign to most of us. However, here we are and doing a VA loan online and not in person is very commonplace.

Are you part of the VA?

We are not. We are an approved VA lender who is authorized and approved by the Department of Veterans Affairs to originate VA home loans. We do not represent the VA. Our VA lender ID number is 9797520000. The VA does not do loans or lend money to buy homes. The VA guarantees a portion of your loan to the lender to help mitigate some of the risk the lender assumes when lending money.

What is the Low VA Rates Low APR Guarantee?

Answer

As our name may suggest, we take great pride in providing hard-working veterans with affordable financing. Of course, customer service, along with a friendly and knowledgable staff are also very important. We realize there are many friendly competitors out there, but we will strive to be your favorite. Official Rules/Regulations

We do have BBB accreditation. We have met all of BBB's standards of trust and are proud of our A rating. BBB accreditation indicates many things, but above all, it indicates proper practices of honesty, clarity, and privacy within the company and its relationships with customers. Through this accreditation, we show our dedication to our customers and to the VA loan industry.